Aid Effectiveness: The World Bank and Japan

Kevin Morrison1

This paper explores recent trends in the international community’s view of how

aid can be most effective, particularly as articulated and implemented by the World Bank, and evaluates aspects of Japan’s aid program in this context.

The comparison is important and interesting because of one similarity and one

difference between the World Bank and Japan. The similarity is that they are both the largest donors in their respective donor categories—the World Bank as a multilateral donor and Japan as a bilateral donor—and therefore have large influence in international development cooperation. World Bank lending totaled about $15.3 billion in fiscal 2000 (concessional lending from the International Development Association was $4.4 billion of that). Japan’s bilateral aid totaled $8.6 billion in 1998 and $10.5 billion in 1999. The major difference between them is, however, exactly that one is multilateral and the other bilateral. As a multilateral donor, the Bank is pressured by many international groups—mainly its member countries and non-governmental organizations—to succeed in its mission of alleviating world poverty. As a bilateral donor, Japan’s aid program is more subject to domestic pressure, both to spur development in poorer countries but also to support domestic (mainly commercial) interests as well.

Because a donor’s approach to aid has an impact on its actions—and thereby on the effectiveness of its aid in promoting development—this paper begins by examining the Japan’s and the World Bank’s philosophies on aid and how they have been influenced by evolving conceptions of poverty and how to reduce it. The paper then moves on to look at the donors’ actions, examining how sectoral allocations of the World Bank and Japan have changed over time, and whether they are generally in line with the philosophies they have been advancing. The third section goes one level deeper, looking at the mechanisms by which aid is delivered, focusing in particular on recent international emphases on country ownership, less intrusive mechanisms for aid delivery, and donor selectivity (i.e. giving aid to those countries who will use it best). It will be shown that one the essential components of the international development community’s strategy for improving aid effectiveness is to put much more responsibility on the recipient country for managing aid. However, this will no doubt present problems for countries with limited capacity, which almost by definition include most poor countries. Therefore the fourth section examines technical assistance—donor efforts at building capacity—and looks at the record of Japan and the World Bank in this area. A final section offers some conclusions and recommendations. 1 PhD Candidate, Department of Political Science, Duke University.

I. Changes in the Philosophy of Aid

The international community’s approach to aid policy has been in transition since the end of the Cold War. This is a result of at least three factors. First, the end of the Cold War has enabled development agencies to focus more on development than they did before, when political goals were a large determinant of aid allocations.2 Second, the international community’s conception of development has broadened over time. Third, this broadening has led to a gradual expansion of the strategy for aiding development. This section examines the broadening conception and strategy, as reflected both in the World Bank and in Japan. Development is closely related to the eradication of poverty, and as the international community’s conception of poverty has expanded, so has its conception of development.3 For most of the 20th century, until the 1980s, poverty was conceived of solely in terms of income or expenditure. Those in poverty lacked, for example, the means for “minimum subsistence” or lacked the “minimum necessaries for the maintenance of merely physical efficiency”. But in the last two decades, the international conception of poverty has broadened considerably.

The World Bank’s World Development Report—the flagship publication of the Bank which every 10 years focuses on poverty—gives a good indication. The 1980 World Development Report on poverty, for example, signaled a change by not mentioning income or consumption in its definition of absolute poverty, rather focusing on “a condition of life so characterized by malnutrition, illiteracy, and disease as to be beneath any reasonable definition of human decency.”4 The 1990 World Development Report on poverty further advanced this conception, supplementing “a consumption-based poverty measure with others, such as nutrition, life expectancy, under 5 mortality, and school enrollment.”5 And the 2000 World Development Report “accepts the now traditional view of poverty…as encompassing not only material deprivation (measured by an appropriate concept of income or consumption) but also low achievements in education and health…[and] also broadens the notion of poverty to include vulnerability and exposure to risk—and voicelessness and powerlessness.”6 Why has this broadening of development and poverty occurred? To a great extent it is because of research that has shown that income is too narrow a measure of human well-being.7 Instead of being only an end in itself, greater income has come to be seen as means to and end. Instead, the end goal has been transformed into something resembling

2 Political goals do remain an important influence. See Alesina and Rodrik 1998. 3 This discussion draws from Kanbur and Squire 2001. 4 World Bank 1980, p. 32. 5 World Bank 1990, p. 26. 6 World Bank 2000a, p. 15. 7 The United Nations Development Programme’s Human Development Reports have been instrumental in raising the profile of this research and in advancing the concepts of the Human Development Index and the Human Poverty Index. These indices combine income measurements with other measurements of human well-being, such as health and education.

2

what Nobel Prize-winner Amartya Sen’s calls “the capabilities that a person has, that is, the substantive freedoms he or she enjoys to lead the kind of life he or she values.”8 The importance of this shift in the conception of poverty and development lies not in the people identified as being “poor” and therefore targeted by policy actions. While there are some differences in the groups of people who suffer from the various dimensions of poverty, on the whole these differences are not great.9 Rather, the importance of the broadening conception is in the strategies and policies used to fight poverty. The various dimensions of poverty are closely related—this is in fact why the groups of people who suffer from them overlap so much. For example, an income-poor person is less able to buy medicines to protect herself from illness; a family in which the breadwinner is sick may pull children out of school; uneducated people are less able to make themselves heard by political institutions; political institutions that do not listen to the poor may bias market regulations against them; and so on. Attacking poverty therefore requires a wide approach to policy options.

Therefore it is not surprising that the change in the conception of development has led to changes in the philosophies and approaches of aid agencies. The income conception of poverty prevalent when development assistance started in the middle of the 20th century led directly to a focus on economic growth. And because the Great Depression was a not-so-distant memory for many policymakers, most policymakers believed that growth required a strong state to correct the significant failures of the market. The result of this thinking was an emphasis on rapid industrialization by central state planning, and most resources went to heavy industry. Between 1950 and 1959, 61 percent of World Bank lending went to infrastructure, and none of it went to the social sectors. However, as the conception of poverty has broadened—and as the consensus opinion on state-led versus market-led growth has shifted back and forth—aid agencies have changed their operations. The World Bank, for example, now lends 15 percent of its money to infrastructure and 22 percent to the social sectors (the figures are lower and higher, respectively, when only concessional lending is counted—see below).10 Japan’s aid philosophy

Japan’s ODA approach has changed significantly too. Like other bilateral donors, for most of its history Japan’s aid has served many non-development purposes. In Japan’s case, these purposes were largely based on either domestic economic interests or international political interests. Domestic economic interests included securing markets for Japan’s goods and establishing and maintaining friendly relations with countries endowed with energy and natural resources that are scarce in Japan (this was especially true after the first oil shock in 1973). International politics, and particularly Japan’s

8 Sen 1999, p. 87. Sen’s work over the past two decades (including Sen 1981 and Sen 1984) has been instrumental in the broadening of the conception of poverty. 9 Kanbur and Squire 2001. 10 World Bank 2000b.

3

relationship with the United States, meant that part of Japan’s aid during the Cold War went to supporting America’s geo-strategic and ideological interests.11

Japan’s aid philosophy changed after the Cold War, as reflected—at least in

principle—in its 1992 ODA Charter. The new approach included four principles to guide aid allocations, including nods to environmental conservation and “basic human rights and freedoms”.12 The broadening approach to development is certainly apparent in these principles. In addition, Japan was instrumental in seeing that this broad approach was set out in an important 1996 OECD/DAC strategy document entitled Shaping the 21st Century: The Role of Development Cooperation.13 Japan has publicly supported the strategy’s international acceptance, including at the Tokyo Conference on the DAC’s New Strategy in June 1998 and at the second Tokyo Conference on African Development in October 1998. In addition, in its 1999 “Medium Term Policy on Official Development Assistance,”14 the Japanese government commits to “manage its ODA in a manner consistent with its ODA Charter and with an eye to the goals of the [DAC] Development Partnership Strategy.”

It would seem, therefore, that Japan is right in line with the international

community and the World Bank in terms of aid philosophy. However, doubts have been raised as to the extent to which the ODA Charter has guided aid flows, as it seems to have been applied inconsistently, particularly in major recipient countries.15 Furthermore, the ODA Charter has also been criticized for not providing clear directions on actions to take in particular circumstances.16 This lack of direction has been alleviated to some degree by the Mid-Term Policy on ODA released in 1999, which sets out priority sectors and issues, both in general and by region. However, it remains to be seen how this will be translated into practice. Up until now, as the next section shows, while Japanese pronouncements on the aid agenda have been in line with the international community, its aid allocations have not followed suit.

11 Orr 1990. Although common to many donors, the particular reasons that Japan’s ODA has had these purposes are unique. One is that Japan’s economic prosperity is based on importing raw materials, processing them (and adding value), and then exporting the finished products to earn foreign exchange. Subsequently raw materials, while important everywhere, are particularly crucial to Japan. And second, because of Japan’s history in World War II and subsequent lack of a standing army, aid has been seen as the most important instrument for promoting national and international interests, including domestic economic welfare and global strategic interests (Eyinla, p. 412). 12 See ODA Charter at http://www.mofa.go.jp/policy/oda/summary/1999/ref1.html The four principles are: (1) Environmental conservation and development should be pursued in tandem; (2) Any use of ODA for military purposes or for aggravation of international conflicts should be avoided; (3) Full attention should be paid to trends in recipient countries' military expenditures, their development and production of mass destruction weapons and missiles, their export and import of arms, etc., so as to maintain and strengthen international peace and stability, and from the viewpoint that developing countries should place appropriate priorities in the allocation of their resources in their own economic and social development; (4) Full attention should be paid to efforts for promoting democratization and introduction of a market-oriented economy, and the situation regarding the securing of basic human rights and freedoms in the recipient country. 13 OECD/DAC 1996. 14 http://www.mofa.go.jp/policy/oda/summary/1999/ref2_01.html 15 See, for example, Söderberg 1996, Eyinla 1999 and Randel, German, and Ewing 2000. 16 Lancaster 1999 and OECD/DAC 1999.

4

II. Priority Sectors

Japan’s aid has long been heavily focused on infrastructure – in fact, the percent of bilateral aid committed for economic infrastructure in 1977-78 (40.5 percent) was almost identical to that spent in 1997-98 (41.2). As discussed above, this was the fashion of most development agencies a few decades ago, but most donors have downsized their infrastructure allocations and increased their lending to other dimensions of development.

Figure 1 shows a comparison of the most recent sectoral breakdowns of development finance from Japan and the World Bank.17 The World Bank’s lending is shown both as combined lending from the International Bank for Reconstruction and Development (IBRD, non-concessional lending) and the International Development Association (IDA, concessional lending), and only IDA lending, which is targeted at the poorest countries (generally under annual GNP per capita of $885). The differences in two categories are immediately noticeable: infrastructure and human development (mainly education and health). Japanese spending on infrastructure as a percentage of its ODA is more than double the percentage of combined IBRD/IDA spending, and almost more than 2.5 times that of IDA spending alone. There is almost a mirror image with regard to human development, with the percentage of combined IBRD/IDA spending more than 2.5 times that spent in Japan’s aid.18 When IDA spending is considered alone, the percentage spent on human development is almost five times the percentage spent on Japanese aid.

As mentioned in the introduction, the World Bank is a multilateral institution whose sole mission is poverty reduction, and as such it does not have to cater to domestic interests in the same way that bilateral donors do. So perhaps a more “fair” comparison is between Japan and its DAC peers. While the disparity is not as sharp, Japan in 1998-99 almost doubled the DAC average of percent of ODA spent on economic infrastructure (34.6 percent as opposed to 18 percent), and spent about two-thirds the DAC average of percent spent on social and administrative infrastructure (19.3 percent versus 29.3 percent). In fact, the DAC averages of spending percentages in these sectors are heavily influenced by Japan’s spending, because Japan is the largest donor. Therefore Figure 2 shows a comparison between Japan and other major donors (“major” because of total aid disbursed or by ratio of aid given to GNP). The discrepancy is even more pronounced.

17 These figures should be seen as approximations for Japan, as the sectoral breakdown used is that of the World Bank. Because Japan’s 1999 annual report gives sub-sectoral details on ODA allocation, these were allocated into the sectoral breakdowns in the World Bank’s 2000 annual report. For example, the Japanese sector of “social infrastructure and services” includes the category “water supply and sanitation,” but the World Bank’s breakdown includes water supply under “infrastructure”. However, though there is therefore a lack of precision in the comparison between Japan and the World Bank because of differences in measuring sectoral allocation, the author is confident that the disparities discussed here are far too great to result from measurement differences. 18 It is also worth noting that when health and education expenditures are further disaggregated, Japan spends only about two percent of its ODA on basic education and health. Instead, the emphasis is more on higher education and “tertiary and curative health, such as hospitals and high technology equipment, medical research institutions, high level training, and posting of Japanese advisors” (OECD/DAC 1999, p. 43).

5

Figure 1: Sectoral Allocations for the World Bank and Japan

Source: Minis try o f Fo reig n Affairs o f Jap an (2 00 0) and Wo rld Bank (2 00 0b ).

0

5

10

15

20

2 5

30

3 5

40

Pub lic Secto rManag ement

Finance andPrivate Secto rDevelop ment

Infras tructure Agriculture &Environment

Econo micPo licy

HumanDevelop ment

Other,includ ing

mult isecto r,elect ric p owerand energy, o iland g as , and

mining

Jap an, 19 9 8Wo rld Bank, FY20 00IDA, FY20 0 0

Figure 2: Percent of ODA spent on Economic Infrastructure and Social and Administrative Infrastructure, 1998-99

0

5

10

15

20

25

30

35

40

45

Norway France Sweden UnitedStates

UnitedKingdom

Germany Japan

Source: OECD/DAC 2001a.

Economic Infrastructure

Social and Administrative Infrastructure

6

It should, however, be noted that Japan has also come a long way. In 1977-78, Japan spent only 6.6 percent of its bilateral aid on social and administrative infrastructure (the DAC average then was 20 percent).19 And Japan’s Medium Term Policy on ODA calls for “greater emphasis on poverty alleviation programs and various aspects of social development, human resources development, policy-related assistance and other ‘soft’ types of aid.”20 This is welcome, as Japan has a long way to go in implementing the broader approach to development outlined in the DAC strategy and in its own policy statements. III. ODA Implementation As mentioned above, the end of the Cold War took some of the political pressure off of aid allocation. But it also brought the issue of aid “effectiveness” clearly onto the radar screen of the international community. If aid was no longer so crucial for geopolitical purposes, then it better be effective at spurring development—or else it was not worth the cost to tax payers. Thus, especially toward the end of the 1990s, there was an increased push to discover how aid could be delivered (not just allocated by sector) more effectively. The World Bank provided its latest thinking about aid delivery in its World Development Report 2000/2001 on poverty. It argued that aid should ensure “ownership” by the recipient country, should be delivered in ways that are less intrusive to the government than past delivery mechanisms, and should be allocated to those countries who will use it best. This section explains these points and examines Japan’s ODA in light of them. Ownership and partnership

Aid in the past has catered more to the desires of donors than to the needs of

recipients. While this was a somewhat workable approach if the goal was political, it has been shown to be ineffective when the goal is development.21 This is largely for two reasons—one of substance and one of process.

Substantively, in line with a broadening conception of development, it has been

shown that development is largely determined by local conditions, including social institutions, social capability, ethnic fragmentation, inequality, and geography. These variables significantly account for the variation in growth rates over the past 30 years.22 Not surprisingly, these factors also affect aid effectiveness.23 If development depends on local conditions, and donors are not paying attention to local conditions, it is unlikely that their aid will be effective.

19 OECD/DAC 2000. 20 http://www.mofa.go.jp/policy/oda/summary/1999/ref2_02.html 21 See, for example, Killick, Gunatilaka, and Marr (1998)and van de Walle and Johnston (1996). 22 Temple 1999. 23 Hansen and Tarp 2000.

7

From a process standpoint, it has been shown that “ownership” of projects—that is, whether or not the local population believes in and subscribes to the project—has a large impact on whether or not the project is successful.24 If people do not think that the project is in their best interests, they will not contribute their own effort or funds in times of difficulty, and they will not continue the project once the donor has left—two key elements of project success.

Understanding of local needs and conditions is therefore essential to effective aid.

The World Bank, understanding this (a bit late), has moved to decentralize its staff and decision-making in the past few years. Japan too has long been criticized for its lack of field presence and has talked about increasing its field presence. Ironically, the share of field staff to total staff in Japanese ODA is already higher than the World Bank’s presence in the field (31.3% to 23.8%).25

There are two important factors that likely account for repeated complaints about

a lack of Japanese staff presence.26 The first is that while the share of employees in the field is relatively high, the number of total staff is extremely small. Japan’s total bilateral ODA equals slightly over half total IBRD/IDA lending, and yet Japan’s total ODA staff is less than a fifth the size of the IBRD/IDA staff.27 The second factor is that decision-making in Japanese ODA is heavily centralized in Tokyo and can take a long time as consensus is built. The OECD/DAC review of Japan’s aid in 1999 said that this centralization was hindering Japan’s partnership with both the recipient country and other donors, and the issue was also raised in the Japanese evaluation of its aid to Peru.28 And one aid scholar has argued that this type of organization may be the wrong kind of institutional design for a development organization, which requires awareness of local conditions and learning as one goes.29

24 Van de Walle and Johnston 1996. 25 Share of staff in field for Japan are taken from OECD/DAC 1999. Share of staff in field for World Bank is taken from the Bank’s website: http://www.worldbank.org/html/extdr/about/ 26 See, for example, the case studies of China and Ghana in OECD/DAC 1999. 27 This lack of staff and field presence may be one reason why Japan has not moved into the social sectors and other “softer” issues of development—they require more project preparation time and, arguably, more knowledge of local conditions and more complex involvement and monitoring than traditional infrastructure projects. 28 OECD/DAC (1999) and Committee on the Second Country Study for Japan’s Official Development Assistance to the People’s Republic of Peru (1998). 29 Lancaster (1999) argues that the characteristics of aid work—i.e. uncertainty about how to accomplish risky tasks in unfamiliar environments (which aid officials cannot control) and often ambiguous goals and outcomes difficult to measure—suggest that aid agencies should have a number of key qualities. They include: “a maximum degree of decentralized staff and authorities to the field where their work must be accomplished (but not so much as to lose broad program and policy coherence) and with the opportunity to spend time outside of field offices learning about the society in which they are posted, programming systems that permit and reward experimentation and learning, a technically qualified staff capable of managing all the various types of activities the aid agency undertakes, the involvement of local individuals and groups in the planning and implementation of aid-financed activities (consistent with the maintenance of programming standards and accountability), a system of evaluation that is reliable, comprehensive, accessible, and with incentives for staff to use its findings, and incentives for aid officials to decide not to plan and obligate monies where conditions are not supportive of the success of their programs or projects.

8

In principle, because of Japan’s “request-based” system of project identification

in the past—whereby aid projects were supposedly identified by the recipient country—it might not need to have as great a field presence as other donors. In fact, a request-based system might be close to the ideal put forth by those who favor recipient country ownership, if projects are truly requested and designed by the recipient country and then funded by the donor. In practice, however, Japan’s request-based system has not worked like this. As Arase (1995) has explained, the administrative work required to request an aid project is immense and often far beyond the capacities of developing countries. The result is that projects have usually been “injected” by Japanese companies or trade associations working with the Japanese government.30 The result, not surprisingly, has been a lack of ownership on the part of recipient countries. Japan has recently said it will be moving away from the request-based system and more toward coherent country programming. In doing so, it should be aware that the problem with the request-based approach was not the principle, but rather the practice. In principle, the request-based approach is very much in line with the international community’s push toward greater recipient country ownership. In moving to a more strategic and programmatic approach, Japan should attempt to move, in fact, more toward the principle of the request-based approach and away from the way it has been implemented until now.

Delivery Mechanisms Along with a greater focus on recipient country ownership has come an acknowledgement that donor practices have often overwhelmed developing country governments with limited capacity—either because of poor coordination or overly onerous reporting requirements. Thousands of donor projects can be going on at one time in a given country—sometimes in one sector in a country—and they are often disbursed outside the national budget and can be stopped at any time by a donor. This makes accurate budget planning almost impossible. The time spent coordinating donors and solving problems caused by poor coordination could certainly, from a development perspective, more usefully be spent responding to local citizens.

A radical solution to this problem is a “common pool” approach to development assistance.31 In this approach, donors would simply provide budget support (the common pool of resources) to an overall medium-term strategy designed by the recipient government in consultation with donors. Financial support would reflect the comfort level of each donor with both the strategy and the ability of the government to monitor expenditures. Individual donor-financed projects and tied aid would end, as would the administrative burden of coordinating different donor preferences into a coherent agenda. Recipient country ownership would be assured, but the approach also ensures that donors have a voice and can support the policies and programs they prefer.

The bottom line is that aid agencies, probably more than any other government agencies, need to be flexible, ‘learning’ agencies with the ability to say no.” (p. 226) 30 See pp. 147-163. 31 Kanbur, Sandler, and Morrison 1999.

9

Because of weak capacity in developing countries, international use of such an approach to development assistance is likely several years down the line in most countries. However, some sectors in individual countries have better capacity than others, and in many countries donors are beginning to experiment with “sectorwide approaches” (SWAPs). Disbursements for sectorwide programs in Africa have increased every year since 1997 and are likely to exceed $500 million in 2001 (by comparison, all IDA lending amounts to $3 billion).32 Though the goal is that eventually most of this support will go through the sectoral budget, a survey by the Strategic Partnership with Africa of 16 SWAP-like sector programs found that 80 percent of disbursements were using donor project procedures, and only 17 percent used direct budget support. However, it is still in the early days of these approaches, and 40 percent of donor replies indicated that they use direct budget support for at least part of their support.33 Because of regulations on the use of their funds, neither Japan nor the World Bank can participate in budget support in these programs. The World Bank’s procurement and disbursement regulations on investment loans prevent the mixing of World Bank money with other donor and government money.34 This is somewhat ironic, as the World Bank in three of its most major recent publications has looked favorably on the idea of the common pool approach.35 Pressure is now being put on the institution to change its regulations so that it can participate more effectively in these types of arrangements.

Japan cannot participate in pooling arrangements because of concerns for accounting for expenditures. There is also a concern that pooling arrangements limit the ability of a donor to “raise its flag” over a given project, and Japan is worried it will not be able to show tax payers the results of their money. Perhaps more significantly, common pooling arrangements do not enable donor money to be “tied” to particular suppliers (since once money enters a common pool, it ceases to be, for example, “Japanese” money), as much of Japan’s grant aid is.

Therefore Japan participates in sectorwide approaches by taking a defined

segment of the overall plan and providing equipment, supplies, facilities, and technical cooperation.36 This, however, does not allow the ownership that use of a common fund would. For example, an independent assessment of a sectorwide approach in Zambia’s health sector found that:

Some donors have insisted on placing their own advisors in the Ministry, perhaps to reassure themselves of the proper use of funds. Donors have also continued with projectized grants, and have attempted in recent years to support more integrated activities and fewer vertical ones.

32 Secretariat of the Strategic Partnership with Africa 2000, cited in World Bank 2001. 33 Secretariat of the Strategic Partnership with Africa 1999, cited in Brown et al. 2001. 34 Brown et al. 2001. 35 World Bank 2000a, World Bank 2001, World Bank and partner institutions, 2000. 36 OECD/DAC 1999.

10

Nevertheless, despite these efforts for integrated projects, the very effect of the project itself, when felt in a district, is that of a “vertical” programme which comes in from outside the system.37

The use of sectorwide approaches is likely to continue to increase, particularly as

learning continues and donors become aware that rigorous monitoring of spending is possible in these programs may help reassure parties concerned.38 In addition to the endorsement of the sectorwide approach by the World Bank, the DAC poverty guidelines issued in May 2001 endorse budget support as a means to deliver aid, saying it “allows financial resources to be disbursed with minimum transaction costs. By giving the partner country fuller responsibility for financial decisions and management, such support underpins the principles of partnership and ownership.”39

As sectorwide approaches are increasingly used, Japan’s inability to participate in

budgetary pooling may hinder its participation in some sectors. Although it is not an immediate problem, Japan should be aware that in the medium term it will likely need to revise its regulations that inhibit its participation in sectorwide and budgetary approaches. Selectivity The final recommendation in the World Development Report 2000/2001 with regard to aid effectiveness is that donors pay more attention to the policy environment to which they are giving aid. Research has shown that while aid overall has had little relationship to growth in developing countries, aid has indeed had a large effect on growth, poverty reduction, and social indicators when it has flowed to countries with good policies—such as “stable macro-economic environments, open trade regimes, and protected property rights, as well as efficient public bureaucracies that can deliver education, health, and other public services.”40

Since 1980, the World Bank has been evaluating borrowers’ policy and institutional performance related to economic growth and poverty reduction. These assessments are currently the main factor that drives allocations of IDA lending (the poorest of the eligible borrowers receive higher allocations for a given performance level).41 The assessments contain two factors—overall policy performance (80%) and a measurement of the success of past IDA lending (20%). The policy evaluations include 20 performance criteria, spanning the categories of economic management (such as inflation and debt management), structural policies (such as trade policy and environmental sustainability), policies for social inclusion and equity (such as human resources and safety nets), and public sector management and institutions (such as property rights and transparency of the public sector). The project portfolio measurement rates countries in terms of “number of projects at risk.”

37 Working Group on Zambia’s Health Reforms 1997, p. 26. This working group was an independent review team requested by Zambia’s Minister of Health to study the sector. Members of the group were drawn from the Ministry of Health, WHO, UNICEF, and the World Bank. 38 See Brown, Foster, Norton, and Naschold 2001. 39 OECD/DAC 2001b, p. 15. 40 World Bank 1998, p. 14. 41 World Bank 2000c.

11

There are many questions that surround using such a system, including whether or

not the criteria are the right ones, and whether the subjective measurements of Bank staff are correct. However, when this performance measurement is put into regression analyses as a variable to explain growth, it has statistical significance and other variables do not, implying that it is a reasonable predictor of success. In fact, one estimate says that if all aid were allocated solely on the basis of severe poverty and adequate policies (as represented in the IDA assessments), current aid disbursements would lift about 80 million people per year out of poverty instead of the current estimated 30 million.42

How does Japan’s aid relate to these assessments. Japan’s aid is already biased

toward Asia, where a majority of the world’s poor live. And in terms of policy performance, many of the Asian countries perform reasonably well. Unfortunately the actual IDA assessments of individual countries are not publicly available, but IDA does categorize its recipients into quintiles of policy performance. Table 1 shows where Asian countries fall in these rankings (top quintile being the best performing countries).

Table 2 lists the IDA-eligible countries among the top 20 recipients of Japanese aid (representing about two-thirds of all aid—both loans and grants—given in 1998) along with the quintile they fall into.43 Ten countries not eligible for IDA funding (generally meaning they are not poor enough to qualify) fall into the top 20 recipients of Japanese aid, and they are listed in Table 3. Finally, Table 4 shows the IDA-eligible recipients among the top 20 recipients of Japanese grant funding. Table 1 – Policy Performance Quintile of South or East Asian IDA Countries Top Quintile: Samoa, Bhutan, Maldives Upper Quintile: India, Indonesia, Vietnam Middle Quintile: Bangladesh, Sri Lanka Lower Quintile: Cambodia, Kiribati, Mongolia, Nepal, Pakistan, Solomon Islands,

Tonga, Vanuatu Lowest Quintile: Laos Not eligible: Afghanistan, Myanmar Source: World Bank 2000c. Table 2 – IDA-eligible countries in Japan’s Top 20 bilateral aid recipients 2. Indonesia (Upper) 4. India (Upper quintile) 5. Pakistan (Lower) 6. Vietnam (Upper) 9. Bangladesh (Middle) 11. Ghana (Upper) 15. Mongolia (Lower) 16. Laos (Lowest) 18. Tanzania (Top)

42 Collier and Dollar 2000. 43 Note that China no longer qualifies for IDA lending as it exceeds the per capita income threshold.

12

19. Cambodia (Lower) Source: The Ministry of Foreign Affairs of Japan 2000 and World Bank 2000c. Table 3 – IDA-eligible countries in Japan’s Top 20 recipients of grant aid 1. Bangladesh (Middle) 2. Indonesia (Upper) 3. Tanzania (Top) 5. Laos (Lowest) 6. Cambodia (Lower) 7. Vietnam (Upper) 8. Bosnia & Herzegovina (Upper) 9. Pakistan (Lower) 11. Yemen (Lower) 12. Myanmar (not eligible) 14. Madagascar (Upper) 15. Guinea (Middle) 17. Malawi (Middle) 18. Palestinian Administered Areas (not eligible) 19. Ghana (Upper) Source: The Ministry of Foreign Affairs of Japan 2000 and World Bank 2000c. Table 4 – Non-IDA countries in Japan’s Top 20 bilateral aid recipients 1. China 3. Thailand 7. Philippines 8. Sri Lanka 10. Malaysia 12. Brazil 13. Uzbekistan 14. Kazakhstan 17. Egypt 20. Peru Source: The Ministry of Foreign Affairs of Japan 2000. A few important observations can be made from these tables. Firstly, all of the top 10 recipients of total bilateral aid are Asian, as one would expect from Japan’s ODA. This is probably the main reason why five of the top 10 recipients of Japanese aid are not poor enough to be eligible for IDA funds (though this figure rises to 8 out of 10 when only grant aid is considered, in Table 3). In addition, the emphasis on Asia likely raises the profile of some countries with lower policy performance. One of Japan’s top 5 recipients (Pakistan), and four of its top 20 aid recipients (Pakistan, Mongolia, Laos, and Cambodia) fall into the bottom two quintiles of policy performance among poor countries. If one only considers grant aid, as in Table 3, three of the top nine recipients are Asian countries in the bottom two quintiles of IDA policy performance.

13

However, it should also be noted that Japan’s Asia focus does not account for

many of the top 20 recipients. Table 4 shows that five of the ten non-IDA eligible countries among Japan’s top 20 recipients of total aid are not in East or South Asia. Some of these countries—notably Brazil and Peru—are very much above the cutoff for IDA lending. Therefore neither Japan’s Asia focus nor a concern for poverty reduction seems to account for these countries being such large recipients of Japanese aid. As Japan moves more toward an ODA policy directed at broad-based development, it should also move more toward allocating aid to where it will be spent best. This would likely entail a drop in the aid flows to some countries (for example, Pakistan, Laos, and Brazil) and a rise in others (for example, Vietnam in Asia, and Ghana, Uganda, and Tanzania in Africa). IV. Technical Cooperation It should be easy to note in the preceding discussion that the principal direction in which development cooperation is moving is toward more responsibility to recipient country governments. Evidence shows that there is no real alternative to this. But it also means that developing country governments will have to increase (rapidly) their capacity to manage their affairs if they wish to receive development assistance—and more importantly, to develop. The question then is, How can governments acquire this capacity?

The logical answer might be “technical cooperation”—training provided by donors. But unfortunately, technical cooperation has, in many ways, been a microcosm of all that has failed in development assistance more broadly. It has been very donor-driven, often aimed at developing skills directly useful for a donor project. It has usually been tied to the services of a donor company. It has disrupted local processes. Broadly speaking, after almost 40 years and billions of dollars spent of technical assistance and training in developing countries, there is little evidence that it has done much to improve local institutions.44 In 1996 the Operations Evaluation Department of the World Bank reviewed the Bank’s technical assistance, which at the time occupied about 10 percent of the Bank’s portfolio, comprising 136 free-standing loans (averaging about $20 million each) and technical assistance components (ranging from $200,000 to $50 million each) of about 1,300 other loans (this is in addition to the hundreds of millions of dollars that flows through grants and trust funds of the Bank). The result: “Outcomes have varied widely, but overall the efficacy and cost-effectiveness of TA [technical assistance] has been disappointing, especially in sub-Saharan Africa.”45 The recommendations on how to change technical assistance to be more effective are usually common. The Development Assistance Committee reiterated its recommendations in its Guidelines for Poverty Reduction. These include:

44 The standard review of technical assistance is still Berg 1993. 45 World Bank Operations Evaluation Department 1996.

14

• Setting self-reliance as a strategic objective by focusing on long-term capacity building, rather

than achieving short-term performance improvements by filling gaps in competence. • Planning technical cooperation activities in the context of partner country poverty reduction

strategies and sector programmes, instead of making isolated supply-driven TC [technical cooperation] proposals.

• Defining objectives in terms of outcomes to be achieved, rather than inputs to be provided. • Encouraging greater use of local expertise and defining specific roles for international experts

where needed. • Building on existing institutions and capacity, both public and private, rather than promoting

parallel structures.46

Technical assistance occupies a large role in Japan’s aid program, accounting for about a third of it. It is primarily delivered through the Japanese International Cooperation Agency (JICA). Part of the emphasis comes from Japan’s philosophy of “self-help,” as the idea is to enable countries to help themselves. Unfortunately, however, there is little way to know how much Japanese technical assistance is achieving in this area, as the evaluations done of Japanese technical assistance all reasonably positive, relying on selected comments of beneficiaries or government officials for evidence.47 It would be surprising in the extreme if Japan’s technical assistance has not experienced most of the problems that other agencies have. However, few of the evaluations are hard-hitting, and few offer any specific recommendations for change, except occasionally in “priority” areas for Japan’s aid. Part of this reluctance to criticize may be cultural; however, it does not help in improving the operations of technical assistance, which occupies almost a third of all Japanese bilateral aid. In fact, some of the evaluations are evidence in themselves of the problems with donors and technical assistance. For example, one passage from the recent review of Japanese aid to China—Japan’s largest recipient of aid—read:

In order to restore a “request basis principle” limitation, in policy discussions Japan has made active offers to China concerning areas for [sic] it considers necessary for China’s development and for which cooperation is possible. To make such offered projects succeed, not only is Japan’s enthusiasm necessary, but also China’s budgetary measures, personnel assignment, and organizational and structural formation. Above all, it is necessary to make the Chinese side fully understand all concerned matters, as well as to put effort in creating an environment in which projects could be actively implemented.48

This does not seem to be of the “self-help” mindset. Not only is Japan pushing an agenda, but there is no discussion (nor anywhere else in the passage) about changes in

46 OECD/DAC 1999, p. 71. 47 JICA’s country evaluations can be read at http://www.jica.go.jp/english/publication/studyreport/country. The characteristics mentioned here are reflective of evaluations of Japanese aid in general: the DAC review in 1999 said that “a serious weakness of [Japanese] evaluations is that there is minimal reference to data on socio-economic impact of projects, and, instead, an emphasis on the physical conditions of constructed facilities and on how much beneficiaries have appreciated the projects. Attempts to link the cause and effect of how the projects have actually improved the lives of targeted beneficiaries are notably absent in the published evaluation reports” (p. 48). 48 Committee on the Second Country Study for Japan’s Official Development Assistance to the People’s Republic of China 1999, p. 18.

15

Japanese operations that might make “offered projects succeed”—only a need for Japanese “enthusiasm”! A passage in the review of Japanese aid to Viet Nam was not much more encouraging:

…even with all-out efforts in institutional building and human resources development, it will be quite some time before the benefits [of Japanese technical assistance] become manifest. Indeed, expecting significant improvements in the short term would be unrealistic. Hence, for now it will be essential for aid donors to offset the deficiencies in Viet Namese institutional frameworks through generous increases in their own personnel. We take pleasure in noting that efforts have been initiated to set up JICA and OECF offices in Viet Nam.

It is certainly understandable that Japanese aid practitioners want to offset deficiencies in their recipients’ institutions. However, the drive toward recipient country ownership in international development cooperation has been led by evidence that no matter how much donor personnel is in a country, it will not be able to make up for institutional weaknesses in the recipient government.

In line with the DAC recommendations, JICA should make more effort to make technical assistance demand driven, encourage its incorporation into sectoral and national expenditure plans, and hire more local experts. This will not be easy for JICA to do, because Japanese technical cooperation is almost always “tied” to Japanese providers, which adds pressure for disbursement and reduces the ownership of the project by recipient countries.49 In addition, the practice of tying aid has been estimated to reduce the value of aid by up to 30 percent.50 Unfortunately, after years of being a leader on aid untying, Japanese aid seems to be moving in the wrong direction. 1999 saw Japan’s highest proportion of tied loans in ten years—16.4 percent—and Japan has drawn fire for putting on hold an OECD/DAC resolution that would have untied aid to the least developed countries. In addition, its 1999 Annual Report called for efforts to “develop tied aid within the limits of international rules to make use of the special technology and management know-how of Japanese companies”.51 The World Bank, in its 2000 World Development Report on poverty, called for an end to tied aid. In general, therefore, the problems that plague other technical assistance agencies—indeed, that plague other development assistance agencies in general—also plague JICA. However, one more favorable note is that JICA has recently re-organized itself along country and issue lines in order to provide precise responses to needs in developing countries. Given the need for technical assistance to be tailored to each country—similar to all development assistance—this should be viewed as a step in the right direction. It is also important because of the need for Japan to do a better job at providing its grants, loans, and technical assistance as an integrated and well-coordinated

49 In general, (Castellano 2000). 50 Jepma 1991. 51 Ministry of Foreign Affairs of Japan 2000.

16

package.52 As Japan’s overall ODA is increasingly guided by country planning, coordination between the various types of aid instruments should improve. V. Recommendations Aid effectiveness has meant different things to different donors through the history of development cooperation—often being “effective” had little to do with development. With the end of the Cold War, however, donors have coalesced around a vision of effectiveness as being effective support of a broad-based strategy to fight poverty and promote development. This will not only require that the recipient country take more ownership and responsibility of aid efforts—it will also require changes in donor practices. Based on the findings in this paper, a number of recommendations can be made to improve Japan’s overall aid.

• Broaden sectoral allocations away from infrastructure and more into health and education, in line with Japan’s support of the broad-based international development strategy.

• In order to support this broadening, which will require greater knowledge of country circumstances, continue to decentralize staff and decision-making authority to the country-level.

• Begin internal discussions and processes needed to change the regulations that prohibit Japan from participating in budget support for sectoral aid and technical assistance.

• Reconsider some of its aid flows to richer non-Asian countries and particular Asian countries with poor policies—evidence shows that aid flows to these countries are not in the best interests of aid effectiveness

• With particular reference to technical assistance—potentially a key ingredient in the international community’s assistance to development—it is urgent that Japan drastically improve the quality of its evaluations, so that it can learn better what works and what does not. In addition, in the move away from “request-based” aid, it should keep in mind that the problem with the request-based approach was not the principle but the practice—efforts should be made to ensure that technical assistance is, in fact, recipient driven and, to the extent possible, channeled through sectoral and national expenditure plans. Relatedly, Japan should not increase the share of aid that is tied—Japan’s history of untied aid is of high value, and it would be unfortunate to backtrack now. Instead, more emphasis should be placed on using local expertise, in line with DAC guidelines.

52 See OECD/DAC (1999), Committee on the Second Country Study for Japan’s Official Development Assistance to the People’s Republic of China (1999), and Committee on the Country Study for Japan’s Official Development Assistance to the People’s Republic of Peru (1998).

17

References Alesina, Alberto, and Dani Rodrik. 1998. “Who Gives Aid to Whom and Why?” NBER

Working Paper 6612 (Cambridge, MA: National Bureau of Economic Research. Arase, David. 1995. The Political Economy of Japan’s Foreign Aid. Boulder: Lynne

Reinner Publishers. Berg, Elliot J. 1993. Rethinking Technical Cooperation: Reforms for Capacity Building

in Africa. New York: United Nations Development Programme. Brown, Adrienne, Mick Foster, Andy Norton, and Felix Naschold. 2001. “The Status of

Sector Wide Approaches.” Working Paper 142. London: Overseas Development Institute. http://www.odi.org.uk/pppg/cape/capepapers.html

Castellano, Marc. “More of Japan’s Aid Has Strings Attached.” JEI Report No. 24, June

23, 2000. Washington: Japan Economic Institute. Collier, Paul, and David Dollar. 1999. “Aid Allocation and Poverty Reduction.”

Working Paper 2041. Washington: World Bank. Committee on the Country Study for Japan’s Official Development Assistance to the

People’s Republic of Peru. 1998. The Country Study for Japan’s Official Development Assistance to the People’s Republic of Peru. Tokyo: Japan International Cooperation Agency.

Committee on the Second Country Study for Japan’s Official Development Assistance to

the People’s Republic of China. 1999. The Second Country Study for Japan’s Official Development Assistance to the People’s Republic of China. Tokyo: Japan International Cooperation Agency.

Eyinla, Bolade M. 1999. “The ODA Charter and Changing Objectives of Japan’s Aid

Policy in Sub-Saharan Africa.” The Journal of Modern Africa Studies 37(3): 409-430.

Hansen, Henrik, and Finn Tarp. 2000. “Aid Effectiveness Disputed.” In Finn Tarp, ed.

Foreign Aid and Development: Lessons Learnt and Directions for the Future. London: Routledge.

Japan Forum on International Relations. 1998. The Policy Recommendation on ‘Japan’s

ODA in the 21st Century’. Tokyo: JFIR. Jepma, Catrinus J. 1991. The Tying of Aid. Paris: OECD.

18

Kanbur, Ravi, and Todd Sandler, with Kevin M. Morrison. 1999. The Future of Development Assistance: Common Pools and International Public Goods. ODC Policy Essay No. 25. Washington: Overseas Development Council.

Kanbur, Ravi, and Lyn Squire. 2001. “The Evolution of Thinking About Poverty:

Exploring the Interactions.” In Gerald M. Meier and Joseph E. Stiglitz, eds. Frontiers of Development Economics: The Future in Perspective. Oxford: Oxford University Press

Killick, Tony, with Rumani Gunatilaka and Ann Marr. 1998. Aid and the Political

Economy of Policy Change. London: Overseas Development Institute. Lancaster, Carol. 1999. Aid to Africa: So Much to Do, So Little Done. Chicago:

University of Chicago Press. Ministry of Foreign Affairs of Japan. 2000. Japan’s Official Development Assistance:

Annual Report 1999. Tokyo: Ministry of Foreign Affairs. OECD/DAC. 1996. Shaping the 21st Century: The Role of Development Cooperation.

Paris: OECD. _____. 1999. DAC Peer Review of Japan. Paris: OECD. _____. 2000. Development Cooperation: Efforts and Policies of the Members of the

Development Assistance Committee—1999 Report. Paris: OECD. _____. 2001a. Development Cooperation: Efforts and Policies of the Members of the

Development Assistance Committee—2000 Report. Paris: OECD. _____. 2001b. DAC Guidelines for Poverty Reduction. Paris: OECD. Orr, Robert. 1990. The Emergence of Japan’s Foreign Aid Power. New York:

Columbia University Press. Sato, Seizaburo. 1977. “The Foundations of Modern Japan’s Foreign Policy.” In R.A.

Scalapino, ed., The Foreign Policy of Japan. Berkeley, CA: University of California Press.

Secretariat of the Strategic Partnership with Africa. 1999. “Tracking of Support

Provided under Sector Programs.” Progress report for SPA Working Group Meeting, Paris, October.

_____. 2000. “Tracking of Sector Programs in Africa 2000, Progress Report.” Paris. Sen, Amartya. 1981. Poverty and Famines: An Essay on Entitlement and Deprivation.

Oxford: Clarendon Press.

19

20

_____. 1984. Resources, Values, and Development. Oxford: Blackwell. _____. 1999. Development as Freedom. New York: Anchor Books. Söderberg, Marie, ed. 1996. The Business of Japanese Foreign Aid: Five Case Studies

from Asia. New York: Routledge. Temple, Jonathan. 1999. “The New Growth Evidence.” Journal of Economic Literature

37: 112-56. Van de Walle, Nicolas, and Timothy A. Johnston. 1996. Improving Aid to Africa. ODC

Policy Essay No. 21. Washington: Overseas Development Council. Working Group on Zambia’s Health Reforms. 1997. “Comprehensive Review of

Zambian Health Reforms—Volume I: Main Report.” Processed. World Bank. 1980. World Development Report 1980. New York: Oxford University

Press. _____. 1990. World Development Report 1990. New York: Oxford University Press. _____. 1998. Assessing Aid: What Works, What Doesn’t, and Why. New York: Oxford

University Press. _____. 2000a. World Development Report 2000/2001: Attacking Poverty. New York:

Oxford University Press. _____. 2000b. The World Bank Annual Report 2000. Washington, DC: World Bank. _____. 2000c. “Country Assessment and IDA Allocations.” Washington, DC: World

Bank. http://www.worldbank.org/ida/idalloc.htm _____. 2001. Global Development Finance 2001. Washington, DC: World Bank. World Bank and partner institutions. 2000. Can Africa Claim the 21st Century?

Washington: World Bank. World Bank Operations Evaluation Department. 1996. “Lessons and Practices No. 7:

Technical Assistance.” Washington: World Bank Operations Evaluation Department.